Degrees lose their cachet

The plumber took 10 minutes to unplug the toilet and then presented his customer with a bill for $250.

The customer was shocked. “Your fee equates to $1500 per hour; I don’t make that much and I’m a brain surgeon."

“I know," the plumber replied, “I didn’t make this much when I was a brain surgeon either."

Funny, but an exaggeration; brain surgeons make more than plumbers. But many university graduates don’t. And the gap between the salaries of graduates and non-graduates is narrowing.

The conventional wisdom holds that graduates make more money than non-graduates because the skills they learn at university make them more productive in economic terms. (Why else would employers pay them more?) Yet, figures recently released by the Australian Bureau of Statistics show the proportion of university graduates in professional and managerial positions is decreasing.

Similar results have been reported in other countries – two years after leaving university, 40 per cent of UK university graduates are still unable to find graduate-level jobs. Moreover, the “graduate premium" (the difference between the salaries of graduates and average national salaries) has shrunk by 22 per cent over the past decade.

In the US, 9.4 per cent of university graduates have no job at all.

These are average figures. When we drill down into them, we find some curious anomalies. UK researchers have found non-white graduates are more likely to be unemployed than whites and those who are the first in their families to go to university have poorer job prospects than those whose parents are graduates. Females are still generally paid less than males in the same occupations, and the graduates of less renowned universities suffered a 30 per cent fall in income over the past decade, compared with a 17.5 per cent drop for graduates of elite institutions.

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None of this is easily reconciled with conventional economic wisdom. If it is skills that matter, skin colour, sex, parental education or the prestige of one’s university should not affect a graduate’s job prospects or salary.

Yet, they clearly do. Employers prefer applicants from certain social groups and backgrounds. A university degree is another social distinction much like race or sex. It is not the skills learned at university that count; all that matters is that a job applicant has a degree (preferably from a prestigious university). In other words, higher education has become an expensive form of job filtering.

If a university degree is simply an entry ticket to work, we would expect graduates to be hired before non-graduates but we would not expect graduates to be more economically productive. That is, the conventional wisdom is wrong; increasing the number of graduates does not automatically lead to economic growth.

And this is exactly what we find.

Despite its world-leading number of university graduates (50 per cent), the US economy has barely grown in real terms over the past 10 years. Russia has a high percentage of graduates but no one would want to emulate its economy.

In contrast, Switzerland and Hong Kong have boomed for decades with relatively low percentages of graduates.

As degrees become more common, their filtering value decreases. When everyone has one, a bachelor’s degree will confer no social distinction at all. At that point, a new filter will become necessary. So get ready for a massive growth in master’s degrees. (Remember, you read it here first.)

It is not too late to reconsider whether another round of degree inflation is really what Australia needs. Some graduates (dentists, for example) leave university with employment skills. For the rest, most university education is not a good fit with the world of work. (Just ask employers.)

Because a rewarding occupation is part of a fulfilling life, careers deserve careful preparation. TAFE does this well and so do professional societies, apprenticeships, the military and specialised training schools.

Their training is less expensive than university degrees and more closely tied to the needs of the workplace.

Higher education confers many valuable gifts. It broadens horizons, introduces students to new ideas and concepts, helps them to appreciate and respect scholarship and, when it works well, induces in students a love of learning. But higher education is not a useful ticket for employment. It does not reflect the possession of work-related skills and it does not guarantee graduates will make more money than plumbers.